Legal Commentary

Fire Gretchen Morgenson

Posted on November 22, 2009
No way does Gretchen Morgenson get to take a victory lap because of the SIGTARP report, which she tries to do today. As the late great Tanta pointed out time and again, Morgenson is "a tendentious writer with only a marginal grasp of her subject matter and what appears to be an insatiable desire to make uncontroversial facts sound sinister...

Connie Voldstad to head ISDA

Posted on November 19, 2009
Per the WSJ:The International Swaps and Derivatives Association, Inc., the trade group representing the global derivatives markets, appointed Conrad Voldstad as chief executive officer.Mr. Voldstad will replace Robert Pickel effective Nov. 30. Mr. Pickel, who held the position for the past nine years, will take on the new role of Executive Vice-Chairman...

1998 vs. 2009

Posted on November 19, 2009
A few weeks ago James Kwak noted that Goldman had only $270 billion of assets in 1998, and asked, half-rhetorically, whether that was big enough, since Goldman was "probably doing a perfectly good job of serving their clients at the time." I thought the answer to this question was obvious, but I guess it's not, since this meme has apparently persisted...

The View from the Ivory Tower

Posted on November 18, 2009
Paul Krugman disagrees with my "legal argument" on the AIG counterparties issue because, according to Krugman, "Wall Street doesn?t work like that, and never has." Oh Paul, won't you please tell us more about how Wall Street works? Seriously though, I'm flattered that Krugman, who's practically a hero of mine, actually read my post...

To access this complete feed in the blog feed reader login or register for free.

Geithner Vindicated in TARP Watchdog Report

Posted on November 17, 2009
That's right, vindicated. Read the whole report. It makes clear that the NY Fed did try to negotiation haircuts with AIG's counterparties, but not at all surprisingly, the counterparties (and the French regulators) refused, and the NY Fed was left with no choice but to pay par value...

Saying We Need Big Banks Isn't the Same Thing as Defending Citigroup

Posted on November 16, 2009
In the responses to my post on why we need market-makers with big balance sheets, one thing I've noticed is that a lot of people are completely unable to distinguish between the argument that we need big banks, and the argument that we need the big banks that exist today...

Yes, We Need Big Banks

Posted on November 13, 2009
As I've said before, I think the idea that "too big to fail, too big to exist" idea is just silly?it betrays a fundamental lack of knowledge about the way modern financial markets work. The pundits who push this idea love to argue that banks don't need to have huge balance sheets, and that there's no benefit to having banks with balance sheets of over, say, $400 billion or so...

Sorkin's "Too Big to Fail"

Posted on November 08, 2009
I've been meaning to pass along my thoughts on Andrew Ross Sorkin's Too Big to Fail. Overall, I thought it was an excellent book. It'll be extremely hard, if not impossible, for anyone to top TBTF as the definitive blow-by-blow account of the September '08 market panic...

Should resolving large financial firms be a political decision?

Posted on November 07, 2009
I'm not sure I buy this argument from Yves Smith:Treasury has asked for open-ended authority to resolve large financial institutions, which is pretty much a blank check. That?s a breathtaking power grab by the Executive and should not be acceptable in a democracy...

Janet Tavakoli: All Bark, No Bite

Posted on October 29, 2009
Janet Tavakoli has always been more bark than bite. Being provocative is part of her shtick.In her latest commentary, she accuses Goldman CFO David Viniar of lying about Goldman's exposure to AIG on a September 16, 2008 earnings call (the AIG bailout was negotiated later that day)...

Initial Analysis of New Resolution Authority and QFCs

Posted on October 28, 2009
Treasury and Barney Frank have released their draft legislation on "too big to fail" (TBTF), which includes a special resolution authority, a council of regulators that will monitor systemic risk, heightened prudential standards for systematically important financial institutions ("Tier 1 FHCs"), and a "prompt corrective action" regime for Tier 1 FHCs...

Oh, the Irony

Posted on October 26, 2009
Does anyone else find it ironic that serial acquirer Sandy Weill wrote an op-ed that says:It is vital that one regulator be able to see the entire balance sheet of the country's largest financial institutions, and this regulator needs to cut across artificial institutional lines...

Pay Cuts

Posted on October 21, 2009
Hahaha. Get 'em, Ken:Executives at seven bailed-out companies including Citigroup Inc. and Bank of America Corp. will have their pay cut about 50 percent after negotiations with Kenneth R. Feinberg, the Treasury Department?s special master on compensation, two people familiar with the matter said...

"Too Big to Fail" Policy (Warning: Long)

Posted on October 20, 2009
One thing I've been noticing is that many commentators on "too big to fail" (TBTF) policy have clearly never read the Obama administration's financial reform proposals, or at least have an extremely poor understanding of what the administration is proposing to do...

Citi and BofA

Posted on October 16, 2009
Paul Krugman is clearly confused. Regarding Citi and BofA, he writes:Um, weren?t we being assured that recapitalization by the government ? which would probably require temporary nationalization ? was unnecessary, because the banks could earn their way back to adequate capital ratios?Just saying...

House OTC Derivatives Bill Amendments

Posted on October 15, 2009
Markup of Barney Frank's OTC derivatives bill is now up. Manager's Amendment is here. Frank's exchange-trading amendment is here. Revised definition of "major swap participant" is here.Frank really sandbagged the dealers with his exchange-trading amendment...

R.I.P. Bruce Wasserstein

Posted on October 14, 2009
In addition to being a true investment banking legend, the Lazard CEO and former First Boston dealmaker also had my all-time favorite Wall Street nickname: "Bid 'em up Bruce."Bruce was only 61.

"At Times Skeptical Coverage"

Posted on October 13, 2009
This has to be the early front-runner for Euphemism of the Century, from the NYT:Paul Rittenberg, who oversees ad sales for Fox, said the channel existed in a climate where viewers choose cable news channels based on affinity. His channel, he said, stresses in its pitch to advertisers that ?people who watch Fox News believe it?s the home team...

Rough year for Ed Herlihy about to get worse?

Posted on October 12, 2009
Bank of America is waiving attorney-client privilege and will reveal the legal advice it received in the Merrill Lynch acquisition to federal and state officials. Per the WSJ:[This] will likely result in the bank handing over troves of documents -- including emails and memos between BofA and its outside law firms -- to the federal, state and congressional officials who are investigating the Merrill purchase, according to people familiar with the matter...

Friendly Reminder

Posted on October 11, 2009
Now that OTC derivatives reform is back in the news, with all manner of hysterical claims about derivatives sure to follow, I just want to throw out this friendly reminder: Collateralized debt obligations (CDOs) are not derivatives.That is all.

Cohan Snubbed

Posted on October 11, 2009
I'm sorry, but how does William Cohan's House of Cards not even make the shortlist for the Financial Times/Goldman Sachs Business Book of the Year 2009 prize? With apologies to Liaquat Ahamed and David Wessel, Cohan's book was hands-down the best business/finance book published in the past year...

The Greatest Program Ever?

Posted on October 10, 2009
One of my colleagues recently sent me a new program called OfficeTab, which could be the greatest program ever created. It adds tabs (à la Firefox) to Microsoft Word, Excel, and PowerPoint! I constantly have 5+ Word and Excel documents open at once when I'm in work mode, so for someone like me, this is a godsend...

A Short Answer For Simon Johnson

Posted on October 04, 2009
No one is better than our good friend Simon Johnson at being so smug and yet so completely, embarrassingly wrong. In a post titled, "A Short Question For Senior Officials Of The New York Fed," Johnson writes:At the height of the financial panic last fall Goldman Sachs became a bank holding company, which enabled it to borrow directly from the Federal Reserve...

Should CDS be regulated as insurance?

Posted on July 10, 2009
Locrian asks in the comments to my previous post on CDS and insurance:I guess it just seems to me that you didn't answer (and didn't intend to answer) a much more interesting question: Should CDS be made to fit the definition of insurance, and then be regulated as such?Locrian is right that I didn't intend to address the normative question in my previous post, but I suppose I should...

CDS Are Not Insurance Contracts

Posted on July 06, 2009
Felix Salmon is right: CDS should not be regulated by insurance commissioners, primarily because CDS are not insurance contracts. Felix does a good job of explaining why CDS shouldn't be regulated by insurance commissioners, so I won't repeat him. I can, however, provide the legal reasoning...

Twitter

Posted on July 05, 2009
I'm on Twitter finally. My Twitter name is EconOfContempt.I'm not sure how I feel about Twitter yet. I'm definitely still learning. For a long time, I thought Twitter was a new kind of portable Instant Messenger that you had to have some sort of special cell phone service to use...

Well, at least Palin isn't boring

Posted on July 04, 2009
Like everyone else, I'm completely baffled by Sarah Palin's decision to step down as governor of Alaska. Not only did it come as a total shock to everyone, but she still hasn't offered any sort of realistic explanation. (I even signed up for a Twitter account just so I can follow her, because Twitter is where she said she's going to provide "info on decision to not seek re-election...

Michael Lewis article on AIG Financial Products

Posted on July 01, 2009
Michael Lewis has a new article in the latest Vanity Fair on AIG Financial Products. It's titled, The Man Who Crashed the World, and it's nominally about former AIGFP chief Joe Cassano, but it's really about AIGFP in general. (Cassano plays a big role in AIGFP's story, of course...

Great Charts from the BIS

Posted on June 30, 2009
The BIS has released its always-excellent Annual Report, and it doesn't disappoint. I highly recommend the Report's account of the financial panic last September and October (pp. 23-31). It's easy to forget how truly terrifying it was, and the unimaginable pressure that policymakers?especially the Federal Reserve?were under to solve new systemic threats pretty much every day...

TARP Warrants: Pricing procedures set in original contracts

Posted on June 30, 2009
Simon Johnson reaches new levels of cluelessness, criticizing "Treasury's scheme" for pricing TARP warrants, which he claims was "[b]uried in the late wire news on Friday":This is a mistake.The only sensible way to dispose of these options is for Treasury to set a floor price, and then hold an auction that permits anyone to buy any part ? e...

Bloggers, promote your law blog by nominating your blog for inclusion in USLaw.com's Law Blog Directory and RSS Reader. Benefits described.